Poor power demand dims low bills hope

Kenya’s quest for cheaper power tariffs may remain a fanciful dream, sector players have said, pointing fingers at subdued demand due to delays by the State in implementing mega projects in the country.

Kenya Power, has had to put a freeze on signing new power purchase agreements (PPAs) to shield consumers from higher costs for electricity bought from producers that may not be consumed.

PPAs usually contain a “take or pay” clause meaning that the power producer is paid even if the electricity is not taken due to grid issues or low consumption.

The subdued demand has forced Kenya Power to cut on its appetite for new PPAs, according to acting chief executive Jared Othieno.

“We had made forecasts with hope that demand will pick up so that by the time these units come in, new customers have also come in. Then they would be able to share these costs and invariably the cost of power spread among many people would become cheaper,” he said.

Currently, peak demand is at about 1,859MW, mostly during the day, but this drops to about 1,000MW during the night.

Kenya has been shifting to green energy, with the hope that reducing the use of expensive sources such as thermal plants will help reduce bills. One major green project is Lake Turkana Wind Power (LTWP), with an installed capacity of 310MW.

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The plant’s electricity injection into the national grid has surpassed averages of 300 megawatts on some days, overtaking thermal generators’ contribution to the overall energy mix.

During the day, the project contributes about 14 to 17 per cent of Kenya’s power demand and this shoots to about 32 per cent at night, according to LTWP executive director Rizwan Fazal.

However, he says that this increased use may not necessarily translate into cheaper bills to consumers with the current level of demand.

“You will never bring down the cost of tariff only by bringing in LTWP. That’s just one of the solutions. Until you have enough demand in the system, cost will not come down that quickly,” said Mr Fazal.

“Some of the PPAs are capacity-based, so even if you don’t take their power, you pay for capacity. If you use it, that is when you pay for fuel cost.”

According to the 2015-2020 Development of Power Generation and Transmission Master Plan by Ministry of Energy, electricity consumption was forecast to grow at 7.2 per cent per year. Peak demand was forecast to hit 2,300MW by next year.

By next year, the plan had anticipated that the power demand from Lapsset projects, Konza and SEZs alone would be 684GWh (gigawatt hours) before rising to 2,471GWh by 2025 as other projects become a reality.

However, these projects have run into delays, slowing power demand. In their absence, Kenya Power has to slow down on boarding new PPAs.

“That is why we are rationalising, because reality is that they (those projects) are not there. So we need to reconcile this so that we have new load coming only when there is new demand coming in too,” said Mr Othieno.

The manufacturing sector in Kenya has faced significant challenges in the last 15 years, with its contribution to GDP dropping significantly and giving rise to fears of a premature deindustrialisation phenomenon, according to last year’s report by Kenya Association of Manufacturers (KAM).

“The structure of the manufacturing sector has seen little change over the years despite targeted policy interventions attempting to adjust this,” said KAM in a deep-dive report on the sector.

The government’s Big Four agenda had identified eight priority sectors under the manufacturing pillar, such as agro-processing, textile, leather, oil and mining, iron and steel and ICT.

Mr Fazal says that while it is true that allowing random and unmeasured PPAs will hurt consumers, the delayed projects speak volumes about infrastructure planning.

“It’s a fine mix between planning and policy — if there is much power, why are many streets still dark? If you consume power on street lighting, security can improve and companies can think of 24-hour businesses,” he said.

At night, the system has about 2,400MW of power but the average consumption of 1,000MW means consumers end up paying for capacity costs for 1,400MW not used.

Mr Fazal says that connecting one million homes to electricity may amount to only 200MW in consumption as many homes use power for lighting and running devices. He added that blackouts also mean consumers turn to ancillary sources like generators.

“But if you took the power in industrial zones and allow manufacturing firms in areas previously not served by power, then one entity can consume 20-40MW,” said Mr Fazal.

The use of thermal sources cannot be entirely eliminated, according to Mr Othieno. He says that even though thermal is the most expensive, technically it has a way of stabilising different voltages and meeting certain technical requirements in the system.